Amazon and eBay brawl over Web sales tax

@CNNMoneyTech December 2, 2011: 6:03 PM ET

WASHINGTON (CNNMoney) -- Amazon and eBay had it out in a public brawl in Washington on Wednesday during a congressional hearing about allowing states to collect sales tax on Internet purchases.

Amazon (AMZN, Fortune 500) and eBay (EBAY, Fortune 500) are an opposite sides of the lightning-rod issue -- and touchy about it. During their testimony, the two companies' lobbyists swapped barbs and accusations of everything from being misleading to outright profiteering.

EBay's stance is that tougher sales tax collection laws would hurt the small merchants that use its sales platform. But when eBay executive Tod Cohen trotted out that argument, Amazon's Paul Misener fired back, saying eBay is hardly a small business.

"Let's recall, eBay has facilities in 20 states around the country, they have fulfillment centers in eight states around the country. It is not an isolated business, as it would suggest," said Misener, Amazon's vice president of global public policy. "They also, of course, are a multi-billion-dollar company."

Cohen countered that eBay wouldn't be the one paying sales taxes. Its buyers and sellers would pay.

"If eBay was a retailer, of course, where it had a physical presence, then we'd have an obligation. EBay is not retailer. EBay is a marketplace," said Cohen, who is eBay's vice president and deputy general counsel of global government relations.

Every year more shoppers are turning to the Internet. States, hard-pressed to plug giant holes in their budgets, are taking a fresh run at making sure they get every penny they say they're owed on online purchases.

Right now, federal law says online sellers can't be required to collect sales tax unless the seller has a physical presence in the jurisdiction imposing the tax. That means that for nearly two decades, most online companies have been able to undercut bricks-and-mortar retailers by selling their wares tax-free.

Several states -- most notably California -- have challenged that status quo, passing a patchwork of state laws that require firms to collect sales tax if they have "affiliates" in the area. These new state laws are aimed squarely at Amazon.

After years of fighting all efforts to tax its sales, Amazon recently reversed course and said it would support a "simple, nationwide system of state and local sales tax collection." The company appears to have decided that it can't fend the states off forever -- and that it's better positioned than its rivals to survive the tax hit.

That's exactly the problem, in EBay's view. Cohen said such tax collection would "tip the scales further and benefit the larger stores."

At the hearing, Amazon's Misener accused eBay of "taking advantage of Texas hospitality" by accepting a $3 million state economic development grant to build a facility in Austin while not collecting sales tax there. Texas' budget depends heavily on sales tax revenue, since the state doesn't charge income tax.

But eBay's Cohen countered by reminding the hearing's attendees about Amazon's own charge of heart on the issue.

"That's Mr. Bezos from Amazon's position from two years ago," Cohen, said, referring to remarks made by Amazon's CEO.

"Well, things change, things happen," quipped Rep. Hank Johnson, a Georgia Democrat. To top of page

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